(Nov 21): Hungarian Prime Minister Viktor Orban’s preparations for a financial-market meltdown are baffling investors who see little signs of a looming collapse in one of the world’s best-performing emerging markets.
Orban has spoken repeatedly about the need for a “US financial shield” to protect Hungary — whose sovereign debt is backed by investment-grade ratings — in case of a speculative attack. He even drew parallels with Argentina, which has secured a lifeline from US President Donald Trump.
While the details of Hungary’s plans remain murky, the comments have left investors puzzled about what’s in store for markets as the five-term premier trails in opinion polls before April’s elections. Malin Rosengren, a London-based fund manager at RBC BlueBay, said there’s no need for any kind of immediate rescue package for the US$220 billion economy.
“The question for me is what does Orban have in mind which would inspire him to pursue this deal? None of the potential scenarios are promising,” Rosengren said. “Hungary is not Argentina.”
Talk about a US backstop is jarring investors who are reaping the rewards of a historic rally in the country’s assets, partly driven by bets that Orban will lose the election. Investors expect a win by the opposition would help Hungary regain access to more funds from the European Union (EU).
The forint has appreciated close to 20% to the dollar and 8% against the euro in 2025, the most among emerging-market peers besides the ruble and is set for its biggest annual gains since 2002 and 2012, respectively. Budapest’s BUX stock index is up more than 60% in dollars this year.
In what may be an indication of more volatile times ahead for the east European country’s assets, the forint fell as much as 0.8% against the euro on Friday, the most in six weeks, after the surprise resignation of a Hungarian central bank deputy governor.
While the move appears to be a knee-jerk reaction, with the forint recouping most of its losses by mid-morning, it shows how much of the currency’s current strength depends on continued tight monetary policy. Hungary’s central bank has maintained the EU’s highest key rate, at 6.5%, in the face of government calls for cuts.
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Orban has said if there’s a run on the forint or a “speculative attack”, there would be several types of assistance that the Hungarian and US governments and central banks can “activate”. He hasn’t detailed them, saying the particulars would still need to be worked out, while the US administration hasn’t confirmed or denied any agreement.
In an ATV interview on Nov 11, Orban said Hungary would need US$10 billion to US$20 billion for its stability, compared with Argentina’s US$20 billion US backstop. Bloomberg News has reached out for comment to the prime minister’s press office and the White House.
Political instrument
Hungary’s ruling party is trailing by double digits in some polls ahead of the vote, with a new opposition movement led by Peter Magyar capitalising on a stagnant economy and a cost-of-living crisis.
The talk of US assistance may be part of Orban’s crisis narrative to counter the pro-European opposition, according to Barry van der Laan, a senior currency strategist at Monex Europe.
“The touted ‘US financial shield’ functions as a political instrument, not an economic necessity,” van der Laan said. “While Hungary remains fundamentally solvent with stabilised current accounts, the widening fiscal deficit from election-year spending is the actual friction point.”
The bond market has already started to react as Orban loosened budget targets for campaign spending. The yield on Hungary’s 10-year domestic bond has jumped 30 basis points this month to 7.1%, surpassing Romania as the highest in the 27-nation EU.
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Nevertheless, Hungary has had no issue financing itself from the market and its 2026 fiscal deficit, forecast by Orban at 5% of gross domestic product, is smaller than expected shortfalls in Romania and Poland.
Hungary’s three-year stint of near-zero economic growth, however, is a concern, with S&P Global Ratings placing a negative outlook on the sovereign’s BBB- rating — already the lowest non-junk grade.
Orban has described the potential lifeline from the US as a way to curb reliance on the EU, which has cited corruption and rule-of-law concerns for withholding billions of euros in financing for Hungary.
‘Banker logic’
He has also repeatedly cast international bankers as bogeymen while portraying himself as the guarantor of stability against global risks, including Russia’s war in neighbouring Ukraine. Orban returned to this theme on Friday, dismissing opposition concerns with fiscal overspending as representing the mentality of bankers.
“According to the banker logic, they want to take more money away from people in favour of a supposed wider macroeconomic and financial stability,” Orban told public radio. The premier said he’s focused on the wellbeing of Hungarians over “numbers”.
Raffaella Tenconi, a senior economist at Wood & Co, said the crisis talk is merely campaign rhetoric. “The elections are highly polarising, so some market impact from the result is plausible but as things stand I don’t expect turbulence going into the election date,” she said.
There is precedent for Hungary’s elections to cause currency turbulence. The campaign spending for the previous parliamentary ballot in 2022 helped push the forint to a record low, even though Orban was then facing a much less powerful opposition than Magyar’s Tisza Party is now.
Strategists at Barclays plc on Thursday followed Citigroup Inc in taking profit on their trades positioning for gains in the forint.
Barclays remains “constructive” on the forint, but said the recent rally has made the Hungarian unit overvalued by about 5%, according to analysts Sheryl Dong and Marek Raczko. “This leaves the currency vulnerable to negative headlines on fiscal risks,” they said.
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